An enterprise or business is certainly closely related to the basic concepts of accounting. Why is that? This is because the basic concepts of accounting are the foundation or main basis for carrying out the process of recording, summarizing, clarifying, displaying and even processing data.
This is what makes the basic concept of accounting inseparable from every business or business activity. A company that uses basic accounting concepts in running its business will certainly find it easier in all matters related to company finances.
If you have a business entity or business, it is very important for you to understand every financial record. By knowing the number of debits and credits within the company, the company’s financial reports will become easier to carry out. However, this kind of financial recording process is certainly not easy. You need mature accounting basics and concepts first.
1. Basic Accounting Concepts
Basically, every business actor, whether large or small, cannot be separated from the basic concepts of accounting. A company that has implemented these basic accounting concepts correctly and effectively will find it easier to develop its business.
The basic concept of accounting itself is defined as a formula or concept that applies generally to obtain unified analysis, views and opinions from those providing financial information to other parties.
This concept needs to be understood carefully and maturely. A thorough understanding will help companies avoid mistakes in making financial records. If this risk occurs, it can cause a lot of losses or lead to bankruptcy for the company. Overall, these basic accounting concepts serve as a guide in preparing various types of financial issues, especially for accounting practices.
To understand accounting concepts and related topics such as the accounting cycle, trading company accounting, cash and its control, and many more, Mudalovers can study the book Essence of Basic Accounting Concepts.
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2. Formulation of Basic Accounting Concepts
The opinion of Paton and Littleton quoted from Suwardjono in 2005 stated that the basic concept of accounting consists of the concept of business unity or entity theory , business continuity or going concern , agreement awards, efforts and results or effort and accomplishment, attached prices or cost attached, assumptions and the last consists of verified evidence.
Then, Anthony, Hawkins, and Merchant also added in detail about this basic accounting concept. Quoted by Suwardjono in 2005, they explained
if the basic concept of accounting has several points such as the concept of measurement using monetary units, the entity concept, the concept of business continuity, multiple aspects, conservatism, the concept of cost, accounting period, realization, matching, materiality and consistency.
To better understand the formulation of the basic accounting concepts that have been mentioned. The following are some basic accounting formulations in more detail.
2.1 Accounting Unit
Accounting units are the data and information provided in financial reports. The data and information must clearly state the unit or company being reported. Clear financial data and information from a company will make it easier for the company to carry out financial reporting.
2.2 Corporate Sustainability
Company continuity in basic accounting concepts is very necessary. With company continuity, company financial information can be monitored. If a business entity only runs for a few weeks or only a matter of months, of course the accounting information obtained is useless.
Therefore, a company must continue to exist or continue running continuously. In this way, various information or company financial data can be monitored continuously.
2.3 Accounting Period
The existence of an accounting period is very necessary for a company to monitor its financial position. This accounting period is also closely related to the reporting of financial information within the company where a sustainable company can be divided into periods in the form of financial reports.
A certain period in a company can be a benchmark for the financial condition of the company. In this way, company management can use financial reports as a strong foundation in making subsequent company decisions.
2.4 Measurement in Money Value
Accounting information in a business must also have uniform language which is called monetary value. Uniformity of language with money is important in presenting company information or data.
If the units of measurement are different, it will certainly be difficult to compare all existing information. Overall, the monetary value and financial position or business results of a company form the basis of unity in accounting language.
2.5 Basic Cost of Accounting
Any assets acquired must be recorded in the financial statements. Any value paid to acquire these assets is the value that will be recorded in the financial statements. Next, this value will be presented in the company’s financial reports.
2.6 Determination of Income and Costs
For the issue of determining income and costs, the company must clearly indicate the reporting period. Reporting income and costs is also closely related to the assets and debts of the company or related parties. Determining income and costs basically requires transparent records and consistent records every year.
2.7 Consistency of Basic Accounting Concepts
The principle of consistency in basic accounting concepts is also important in a company. A company that consistently applies this principle from one period to the next will make it easier for them to obtain financial data and information presented in financial reports. Accurate financial reports can be the basis for important decision making within the company.
2.8 Objectivity and Materiality
Objectivity can be defined as financial data and information that is presented without considering one or more particular parties. The definition of materiality can be interpreted as financial data and information that arises from transactions with small amounts. This materiality can be said to have no effect on the company’s financial statements so it can be ignored.
2.9 Conservatism and Realization
The concepts of conservatism and realization should be emphasized in the basics and concepts of accounting. The concept of conservatism itself focuses on the presentation of financial information where those who record fees and income must be more careful.
By emphasizing this principle of conservatism, the financial information that will be presented will be accurate. Then, the meaning of realization is that the financial data and information presented must be transparent. The financial statements must display the basis for recognizing existing revenues in the profit and loss summary.
2.10 Open Statement
Open statements relate to various information or data that is known as well as information that is potential or could occur. All this information should be presented in the financial report. The form of the statement can be in the form of a footnote or in the form of a note in the financial report.
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3. Accrual Basis ( Accrual Basic )
The accrual basis is also known as the accrual basis and accrual principle. This accrual basis is an accounting basis where economic transactions or financial transactions are recognized, recorded and presented in financial reports. These financial reports are based on the effects of transactions when the transactions occur without paying attention to when cash is received or when it is paid.
4. Cash Basis ( Cash Basic )
In contrast to the accrual basis, the cash basis is a recording model based on basic accounting concepts where the process of recording transactions is carried out if there is cash receipts or disbursements.
So, if transactions occur in the form of debts and receivables, but there is no cash coming in or out, then this type of transaction cannot be included in financial records using the cash basis model.
For example, if your company receives income from a company but the money will be given at a later time then this transaction event will not be recorded. This is because there is no cash coming in so it is not considered company income.
5. Business Unity Concept
The concept of business unity can be interpreted as the presentation of company financial data or information that provides information on the company’s own financial problems. Basically, the concept of company finance is separate from anyone else, including the company owner.
Company finances must also be separated from the finances of its employees and the same applies to the finances of company directors. Therefore, the company is considered to be an independent body or organization without interference from any party.
Apart from that, the principle of business unity is also considered important in the world of accounting because all types of transactions recorded by accounting must be viewed from the perspective of the business entity. Thus, accounting displays performance results, financial conditions and other financial information about the company as an entity that stands alone and is separate from its owners.
In simple terms, it can be said that although most of the company’s assets come from the company owner, these assets must still be under the auspices of the company and not the company owner.
6. Continuity ( Going Concern )
A productive company will of course carry out various activities so that its business can run continuously forever. In the period of operation of the company, something called a company financial report is needed.
Company financial reports prepared each period or for a certain period of time will be very useful as a comparison material for the company’s progress from time to time. With these financial reports, accurate data and information will be obtained regarding the ups and downs of income and expenses in a company.
In this way, companies can make new decisions or stick to old strategies in developing their business using data from these financial reports.
Basically, most accounting principles are based on the going concern assumption. A business company will continue to have a long life, this is what underlies the concept of going concern assumption in accounting.
Experience indicates that some companies, despite experiencing many failures, still survive and experience long survival.
7. Determination of Expenses and Income ( Matching Concept )
Determination of expenses and income, also known as the matching concept, can only be recognized in a certain period so that the company’s expenses or income that have occurred have actually been realized.
The process of calculating company profits and losses must be reported with a description that is appropriate to the circumstances that occurred and at a certain time within a certain period. Small-scale business entities can use the cash basis concept because they only have a few receivables and business payables. However, for large companies, they are required to use the accrual basis concept.
8. Acquisition Price ( Cost )
Every transaction in a business entity or company when purchasing goods must be recorded in the financial report. For example, if a company purchases equipment for 10 million rupiah and then the equipment is charged an installation fee of 2 million rupiah, the acquisition price will be 12 million rupiah.
The installation costs or expenses must be added to the price of the equipment so that the total is 12 million rupiah. This value is then included in the company’s accounting records. Thus, the acquisition price is the amount of money spent when purchasing goods or services.
Several experts also have their own views regarding this acquisition price. According to Haryono Jusup, acquisition cost is the total amount of expenditure sacrificed by someone.
According to Wit and Erhans, acquisition cost is the purchase price plus all costs used. Overall, fixed assets and acquisition costs are very important components in every company.
Therefore, these two elements cannot be separated from one another. This is because both assets and acquisition costs are a single unit that supports the success of a business entity. If the two do not go hand in hand then the risk of loss could occur within the company.
9. Accounting Period
The accounting period plays a major role in the principles of a company’s financial statements. Therefore, any financial data or information must be reported regularly. The reporting period can be calculated monthly, quarterly, semi-annually, or once a year. This type of reporting of financial information is called an accounting period. With this accounting period system, it will also be easier for the company to determine the company’s next strategy or policy.
In Indonesia itself, the accounting periods most often used are monthly, quarterly and annually. From a large company to a business entity, no matter how small, if it wants to develop into a larger company, it certainly needs something called periodic reports. This periodic report will support the company’s development from time to time.
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10. Measurement of the Value of Money
Every type of transaction in a company must be measured using certain units of money. Likewise for matters of assets, debts and capital in a business entity. With this measurement using the value of money, the value of all the company’s assets or income can be calculated.